Investigators conclude audit into funding scandal
Publish date: 15 May 2017
Issue Number: 725
Diary: IBA Legalbrief Africa
Forensic investigators have concluded their audit into secret loans worth $2bn that the Mozambican Government secured that prompted the suspension of IMF and World Bank aid. Legalbrief reports that the scandal, which implicated the previous administration of President Armando Guebuza, sent the economy into a tailspin. This after Maputo took out huge secret loans between 2012 and 2014 to fund a coastal protection project. The discovery of the loans, received by state firms including Mozambique's state-owned fishing company EMATUM, prompted the IMF to block a major loan last year. A report on the News24 site notes that a commission of inquiry in December established that government violated the law when it failed to seek authorisation from the assembly. Investigators from New York-based firm Kroll reported their findings to Mozambican officials on Friday. ‘The country's chief prosecutor will proceed with the verification and analysis of the report,’ the prosecutor's office said in a statement. It added that the results of the probe will be released ‘as soon as possible’. The report notes that the scandal triggered the country’s worst financial crisis since the end of the civil war in 1992.
Earlier this month, the World Bank confirmed that Mozambique will benefit from $1.7bn in funding until 2021 under a new programme that will initially concentrate on tackling the consequences of the country’s hidden borrowing. Since the scandal broke, the heavily aid-reliant nation has been struggling to stay afloat and persuade its disgruntled international creditors to restructure its debts. Public Finance International reports that Mozambique has missed two debt servicing payments so far this year. Mark Lundell, World Bank country director for Mozambique, noted the approval of the bank’s programme comes at a ‘critical juncture’ for the country. Of the $1.7bn available from the World Bank, approximately $120m will be made available immediately in the 2017 financial year. Disbursements of around $410m are planned each financial year after that. The money will not contribute directly to Mozambique’s budget, of which 10% is made up of aid payments, the report states.
The incident highlights the risks in letting security services run businesses, as they undermine transparency and economic independence. That’s the view of Jeremy Luedi in an Under The Radar analysis. ‘While there was some speculation as to whether the government would recognise the guaranteed loans, parliament recently ratified the 2015 law providing the aforementioned guarantees. This comes despite a ruling by the country’s administrative court which deemed the loans a breach of budgetary law. In response to the government’s ratification, the opposition walked out during the proceedings. As a result of this fiasco, Fitch has rated Mozambique’s Long Term Foreign Currency Issuer Default Rating as RD, and Long Term Local Currency IDR at CC.' Luedi notes that since November, Mozambique has also already missed two payments totalling $179m. 'Alongside the debt scandal, a key element behind rising instability is inflation. On the one hand, Mozambique is benefiting from an appreciating currency (up 17% since October), especially against the rand. This makes the substantial food and beverage imports from South Africa cheaper, yet any potential windfall is being lost as years of inflation has not been reflected in wages.’ Mozambique’s government has managed to anger everyone from the man on the street to the opposition, international partners, unions and the IMF, Luedi notes.